On April 11, the Centers for Medicare and Medicaid Services (CMS) released its proposed fiscal year (FY) 2026 Inpatient Prospective Payment System rule, which includes updates to hospital payment rates, modifications to CMS quality reporting provisions, and requests for feedback on streamlining regulations and reducing administrative burden in Medicare.
America’s Essential Hospitals is analyzing the proposed rule for comment and will send members a detailed Action Update in the coming days. Comments are due June 10.
Payment Rates and Medicare Disproportionate Share Hospital (DSH) Payments
The rule proposes increasing operating payment rates for general acute-care hospitals by a net 2.4 percent. This payment derives from a market basket increase of 3.2 percent and a -.8 percent adjustment to the productivity factor.
For FY 2026, CMS estimates Medicare DSH payments will increase by $1.5 billion, from $9.2 billion to $10.7 billion. CMS proposes maintaining the existing distribution methodology for Medicare DSH payments.
Wage Index
The rule proposes to discontinue permanently the low wage index policy, which was ruled illegal in 2024 by the Court of Appeals for the D.C. Circuit. CMS proposes to unwind the low wage index policy with a limited exception for hospitals significantly affected by the rollback. Hospitals are eligible for the exception if their wage index drops more than 9.75 percent from FY 2026 to FY 2024; excepted hospitals shall see a maximum reduction to 90.25 percent of their FY 2024 wage index in 2026.
Additionally, CMS proposes to reduce the labor-related share from 67.6 to 66 percent, reducing the overall effect of the wage index on IPPS payments.
Request for Information (RFI) on Streamlining Regulations and Reducing Administrative Burdens in Medicare
To comply with President Trump’s Executive Order 14192 “Unleashing Prosperity Through Deregulation,” published Jan. 31, CMS seeks public input on approaches and opportunities to streamline regulations and reduce burdens on those participating in the Medicare program. RFI comments should be submitted separately.
Transforming Episode Accountability Model (TEAM)
The proposed rule would continue TEAM, a mandatory episode-based payment model in which acute-care hospitals in selected geographic regions would coordinate care for people with traditional Medicare who undergo one of five surgical procedures. The model will launch Jan. 1, 2026, and run for five years, ending Dec. 31, 2030.
CMS proposes implementing a limited deferment period for certain hospitals. Additionally, CMS proposes to change how the model captures quality performance and to remove the health equity and carbonization reporting aspects of the model.
Quality Reporting
CMS proposes to update and codify the current Extraordinary Circumstances Exception (ECE) policy across all quality reporting programs to clarify that it has the discretion to grant an extension in addition to a full exception in response to ECE requests.
CMS issued a request for information to gather comments on the use of the Health Level 7® Fast Healthcare Interoperability Resources® standard–based electronic clinical quality measure reporting in quality reporting programs.
CMS also proposes specific updates to individual quality reporting programs:
Hospital Inpatient Quality Reporting (IQR) Program
CMS proposed to modify four current measures and remove four measures. The proposed rule requests information related to measure concepts focusing on well-being and nutrition for consideration in future rulemaking.
Hospital Readmissions Reduction Program
Beginning with the FY 2027 program year, CMS proposes to:
- Add Medicare Advantage data to the readmission measures and the calculation of aggregate payments
- Shorten the “applicable period” related to measuring performance
- Remove COVID-19 exclusions and risk-adjustment covariates from the readmissions measures
Hospital Value-Based Purchasing Program
CMS proposes technical updates to several measures, in addition to modifying one measure and removing the health equity adjustment from the program.
Medicare Promoting Interoperability Program
In addition to modifying several measures, CMS proposes to define the electronic health record reporting period in calendar year 2026 and subsequent years as a minimum of any continuous 180-day period within that calendar for eligible participating hospitals.
Contact Director of Policy Rob Nelb at rnelb@essentialhospitals.org or 202.585.0127 with questions.
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